With mortgage rates rising rapidly in 2022, is it possible to ‘unfreeze’ decade-old ultra-low rates and empower homeowners to relocate – stimulating housing inventory turnover and energizing the entire U.S. economy. The serious liquidity issue in today’s housing market stems not just from inadequate land supply and inflated construction costs. The key factor is that homeowners enjoying ultra-low mortgage rates are reluctant to relinquish these historically cheap loans and sell. The solution is to unfreeze long-term, ultra-low rates to increase homeowner mobility. This would allow homeowners to carry their existing principal and rate when selling and applying that to a new home purchase for the remainder of the term. Enabling homeowners to transfer ultralow rates to new properties will drive economic growth by accelerating housing market turnover.
Real estate, along with food, clothing, and travel, is considered one of life’s essentials. The housing market specifically plays a vital role in the U.S. economy. Around 65% of homes are occupied by homeowners1, making housing the most substantial investment for most families to build wealth. Overall, the real estate market has a major impact on economic activities like housing construction, professional services, finance, and household consumption. Spending within the housing market accounted for 16.7% of U.S. GDP in 20212.
Interest rates play a crucial role in determining real estate affordability and financing costs. Changes in interest rates can impact monthly mortgage payments, overall borrowing costs, and purchasing power for potential homebuyers. As a result, fluctuations in interest rates significantly influence the real estate market and the proportion of buyers who finance through loans.
Recently, the Federal Reserve increased interest rates to 5.5%, up from the historically low 0-0.25% range between 2008-20153. Today, home borrowing rates are up to 7-8%, while commercial rates are 10-12%, depending on personal financial strength. However, most banks are hesitant to lend because their reserve requirements also rose, and the banking crisis caused industry instability. Banks are now extra cautious with lending. Though not the darkest period in history – mortgage rates peaked at 16-20% in the early 1980s per Freddie Mac4 – major downturns can present opportunities if the right solutions are identified.
I believe the core issue isn’t just high interest rates – it’s that many homeowners with 30-year (or 15-year) ultra-low fixed mortgage rates are reluctant to sell or relocate. They don’t want to relinquish their low rates and face potentially double or triple the current rates, making monthly payments unaffordable. This is a key factor keeping us in a seller’s market amid low housing inventory and rising demand. Contributing factors for demand include millennials entering the market, aging populations, downsizing, remote work trends, constrained new construction due to costs and zoning, limited affordable housing incentives, and institutional investment competition.
When approving financing, lenders assess two key factors: your financial creditworthiness and the appraised value of the home as collateral. If your credit remains unchanged or improves, 30-year fixed ultra-low rates should be transferable to a new property purchase instead of frozen to one location. This would allow assuming the remainder of the original term and principal amount. Of course, the new home’s value must equal or exceed the collateral. Any amount above the existing loan balance would need current market rates. Capping transferable balances at median prices like the $416,000 second quarter 2023 figure from the Federal Reserve Bank of St. Louis5 could limit housing market inflation from this strategy.
Surveys show the majority of homeowners currently have mortgages under 4%, with many below 3%, after refinancing during the pandemic’s record low rates6,7,8. Over 82% hold rates below 5%, per Redfin data, and around 25% are below 3% – evidence many are locked into ultra-low financing.
Enabling rate portability would create a ripple effect benefiting economic activity and tax revenue. As mentioned, the real estate market drives business across sectors, much like the engine at the head of a train moving along the railroad tracks. While additional fees for assumption and transfer to fund infrastructure and affordable housing would be required, these costs pale in comparison to the potential savings versus current high interest rates. Just as a train powers entire industries through its movement, real estate propels economic activity – and rate mobility can further accelerate this engine.
For example, take an assumable loan amount of $400,000 with a 30-year fixed rate mortgage at 3%. The monthly payment is $1,686, totaling $606,960 in principal and interest over the full term. At the current 7% fixed rate, the monthly payment rises to $2,661 and $957,960 overall for 30 years – meaning potential savings of $351,000 by retaining the lower 3% rate when transferring the loan. Even with fees estimated at 3 points for origination on the assumable portion, 1 extra point transfer tax for infrastructure funds, and 6 additional closing costs points, the total 10% fees of $40,000 compare favorably to the possible $351,000 savings. For the broader economy, enabling ultra-low-rate portability would trigger business activity, tax revenue, and job creation. And the funds raised could be dedicated to national transportation infrastructure as a purpose-driven model, making housing more affordable.
The solution of rate portability also presents a sizable market opportunity. Startups like Roostify and Better9 are building technology to facilitate mortgage transfers. With over $11 trillion in residential mortgages outstanding10, even capturing 5% of mobility volume could represent a $500 billion addressable market. If 25% of the estimated 82 million homeowners with sub-5% rates relocated over the next decade, that would unleash massive housing inventory.11 The FPC accelerates adoption of innovations like mortgage rate portability through policy advocacy and connecting entrepreneurs with investors. Enabling solutions that expand housing accessibility aligns with the FPC’s mission to support financial advancements that drive economic mobility.
Modern infrastructure is the backbone of our quality of life. Funds from ultra-low-rate portability could specifically target upgrading public transportation at the federal, state, and local levels. In many countries, public transit-oriented development is highly popular in metro and suburban high-density areas. People rely on efficient high-speed rails and subways for commute times under an hour. This avoids traffic jams and related anxiety, reduces air pollution without car exhaust, and allows time savings for work, reading, or relaxation while traveling. Public transit also enables highly efficient night-time logistics as companies transport cargo by rail rather than high-risk highway trucks.
Media speculation abounds regarding a potential “soft landing,” “hard landing,” or even “no landing” from the Federal Reserve’s interest rate hikes. The Fed raises rates to meet its dual mandate of maximizing employment while controlling inflation. However, geopolitical conditions may also influence rate policy. In the global currency war, a strong dollar attracts foreign investments back to the U.S. Yet the threat of anti-dollar coalitions also sounds an alarm – the nation must build economic strength before challengers erode the dollar’s dominance.
Proposed Solution Steps:
- Lobby Congress to pass legislation directing Fannie Mae and Freddie Mac to guarantee lenders for transferable ultra-low-rate loans. This would incentivize lenders to modify loans into transferable terms, enabling mobility.
- Build a startup app for homeowners wishing to relocate to apply for rate transfers and approved financing terms.
- Refer sellers to local real estate brokers to list properties and identify new homes for relocation.
- Establish a non-profit entity to collect funds from fees and donate towards state infrastructure projects as a purpose-driven business model aimed at rebuilding our backbone.
The current housing market’s challenges largely stem from ultra-low mortgage rates preventing homeowners from selling and relocating. This stagnation has far-reaching implications for the U.S. economy and the livelihoods of individuals. By introducing rate portability, homeowners would be incentivized to sell and move, thus energizing the housing market and benefiting the broader economy. Moreover, the potential for funds raised through this system to bolster modern infrastructure, especially public transportation, presents a holistic solution. The pivotal role of the Federal Reserve in interest rate decisions and the importance of the U.S. maintaining a strong economic foundation in the face of global currency wars is underscored. To combat these challenges, the proposed solution emphasizes legislative change, technological support through a startup app, collaboration with real estate professionals, and establishing a non-profit entity.”
As a member of Financial Policy Council (FPC), one of our missions is to make change by breaking through the traditional, defining problem and finding the solution to make our society prosperous. Over the years, the FPC has hosted numerous events, seminars, and workshops, bringing together thought leaders, policymakers, and industry experts to collaboratively address financial and economic issues.
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 https://sgp.fas.org/crs/misc/IF11327.pdf page 3
 https://therealdeal.com/national/2023/06/15/more-than-90-of-homeowners-locked-into-sub6- mortgage-rates/